Equity Research INDIA

February 1, 2023
BSE Sensex: 59550 Coal India BUY
ICICI Securities Limited Maintained
is the author and Excellent quarterly performance Rs225
distributor of this report
Coal India (CIL) has reported another strong print in Q3FY23. Revenue increased
23.7% YoY to Rs352bn, supported by 1.2% YoY increase in offtake at 175.8mnte and
Q3FY23 result review 23.1% YoY increase in average realisation at Rs1,843/te. EBITDA at Rs104bn was
and earnings revision 52.2% higher YoY, while the company clocked an EBITDA/te of Rs591 (up 50.5% YoY).
Reported PAT was up 69.4% YoY at Rs77.2bn. FSA realisation was Rs1,482/te, while
Utilities/mining e-auction realisation at Rs5,046 continued to be high. Other major factors impacting
the result were: 1) Rs15bn wage provisioning in Q3FY23 (Rs24bn in 9MFY23), 2)
Target price: Rs282 increase in contractual expense (up 20.6% YoY) and stores & spares consumption (up
49.6% YoY); and 3) 143% YoY increase in ‘other income’ to Rs15.9bn. The additional
Earnings revision cost burdens, particularly on account of wage hike agreement (19% minimum
guaranteed benefit agreed upon) and contractual expenses, will be required to be
(%) FY23E FY24E
Sales  8.7  2.9
countered through FSA price hikes. CIL has announced 2nd interim dividend of
EBITDA  10.5 ↓ 8.8 Rs5.25/sh, taking FY23 total dividend to Rs20.25/sh. Maintain BUY.
EPS  14.3 ↓ 5.3  Q3FY23 result – key takeaways
 Offtake was up 1.2% YoY at 175.8mnte. Production was 9.9% higher at 180.1mnte.

Target price revision  Reported PAT at Rs77.2bn was up 69.4% YoY. This was mainly impacted by – 1)
Rs282 from Rs294 increase in offtake and average realisation; 2) 16% increase in employee costs on
higher wage provisions of Rs15bn in Q3FY23, compensating for lower provisioning in
H1FY23 of Rs9bn. This takes total provisioning in 9MFY23 to Rs24bn and total
Shareholding pattern provisioning till date to Rs33bn. Thus, adj. employee expense for 9MFY23 is
Jun Sep Dec ~Rs296bn (additional Rs4.5bn pension payment related charge taken in Q2FY23); 3)
’22 ’22 ’22
Promoters 66.1 66.1 66.1
increase in contractual expense (up 20.6% YoY) and stores & spares consumption
Institutional (up 49.6% YoY); and 4) 143% YoY increase in ‘other income’ to Rs15.9bn.
investors 29.0 29.2 28.8
 FSA / e-auction volumes were +9.2%/-43.5% YoY at 157.8mnte/14.7mnte as focus
MFs and other 9.9 9.8 8.8
Insurance/FIs 12.2 12.3 12.1 continued on supply to power sector. FSA realisation was at Rs1,482/te up 8.2% YoY
FIIs 6.9 7.1 7.9 mainly due to better grade mix. E-auction realisation was Rs5,046/te up 159% YoY.
Others 4.9 4.7 5.1
Source: NSE  Expect strong finish to FY23: With 9MFY23 production/offtake already at
479mnte/509mnte (+15.8%/+5.4% YoY), CIL's volume is poised to reach ~700mnte in
ESG disclosure score FY23. Q4FY22 production/offtake was 209mnte/180mnte, and so ~6% YoY growth is
Year 2020 2021 Chg
required in Q4FY23 to reach the 700-mnte mark. We believe strong demand for
ESG score 39.7 43.7 4.0
Environment 8.4 25.6 17.2 domestic coal may continue to benefit CIL both in terms of volumes and realisation, as
Social 40.9 39.3 (1.6) thermal power PLF remains high and international coal prices elevated.
Governance 69.8 66.1 (3.8)
 Wage negotiations expected to complete in FY23: Ongoing wage negotiations
Note - Score ranges from 0 - 100 with a higher score
indicating higher ESG disclosures. witnessed a major breakthrough as CIL and the four trade unions mutually agreed on
Source: Bloomberg, I-sec research
19% minimum guaranteed benefit for the National Coal Wage Agreement (NCWA)-XI.
This will be effective from 1st Jul’21 for a period of five years on emoluments (basic pay,
variable dearness allowance, special dearness allowance and attendance bonus) and
will be payable to CIL’s 0.238mn non-executive employees as part of NCWA-XI.
Discussions on the remaining issues are expected to close by FY23-end.
 Valuation and dividend outlook: We maintain our BUY rating but revise our DCF-
based target price to Rs282/sh (earlier: Rs294/sh), incorporating higher volumes,
realisations, as well cost increases. CIL is currently trading at 6.3x P/E and 3x EV/
EBITDA on FY24E basis with 34% RoE. We believe dividend yield will be >10% at CMP.
Market Cap Rs1386bn/US$17.0bn Year to Mar FY22 FY23E FY24E FY25E
Reuters/Bloomberg COAL.BO/ COAL IN Revenue (Rs mn) 1,097,135 1,362,713 1,283,794 1,340,201
Shares Outstanding (mn) 6,162.7 Net Income (Rs mn) 173,784 302,162 221,564 240,048
Research Analysts:
52-week Range (Rs) 256 /150 DEPS (Rs) 28.2 49.0 36.0 39.0
Rahul Modi Free Float (%) 33.9 % Chg YoY 36.8 73.9 (26.7) 8.3
rahul.modi@icicisecurities.com
+91 22 6637 7373 FII (%) 7.9 P/E (x) 8.0 4.6 6.3 5.8
Anshuman Ashit Daily Volume (US$/'000) 26,629 CEPS (Rs) 41.5 64.2 51.0 54.9
anshuman.ashit@icicisecurities.com Absolute Return 3m (%) (2.7) EV/E (x) 3.7 2.0 3.0 2.9
+91 22 6637 7419 Dividend Yield (%)
Absolute Return 12m (%) 56.6 7.6 11.1 11.1 11.1
Sensex Return 3m (%) (1.9) RoCE (%) 37.7 49.6 33.0 31.7
Sensex Return 12m (%) 4.0 RoE (%) 39.7 51.5 33.9 32.5
Please refer to important disclosures at the end of this report
Coal India, February 1, 2023 ICICI Securities
Table 1: Q3FY23 result review
(Rs mn)
Particulars Q3FY23 Q3FY22 YoY (%) Q2FY23 QoQ (%)
Production (mnte) 180.1 163.8 9.9% 139.2 180.1
Off-take (mnte) 175.8 173.8 1.2% 154.5 175.8
Realisation/tonne (Rs) 1,843 1,497 23.1% 1,781 1,843
EBITDA/tonne (Rs) 591 393 50.5% 471 591

Revenues 351,693 284,335 23.7% 298,381 17.9%

(Inc)/Dec in Stock -109 8,932 -101.2% 11,841 -100.9%
Stores & Spares expense 35,735 23,893 49.6% 30,400 17.6%
Employee expenses 115,247 99,363 16.0% 108,290 6.4%
Power & Fuel 7,091 7,170 -1.1% 7,269 -2.5%
Social Overhead 1,483 1,536 -3.4% 248 499.4%
Repairs 4,156 3,773 10.1% 3,962 4.9%
Contractual Expenses 62,636 51,942 20.6% 44,205 41.7%
Other Expenses 13,027 13,870 -6.1% 11,923 9.3%
Provision/Write-off 71 0 #DIV/0! 75 -5.7%
Op expenses 239,337 210,480 13.7% 218,212 9.7%
EBITDA (ex OBR) 112,357 73,855 52.1% 80,169 40.1%
EBITDA margin (ex OBR) 31.9% 26.0% 26.9%
OBR adjustment 8,470 5,600 51.2% 7,367 15.0%
EBITDA 103,887 68,255 52.2% 72,802 42.7%
EBITDA margins 29.5% 24.0% 24.4%
Depreciation 12,620 10,413 21.2% 10,771 17.2%
EBIT 91,268 57,842 57.8% 62,031 47.1%
Other Income 15,850 6,529 142.8% 17,612 -10.0%
Interest 2,039 1,316 54.9% 1,352 50.8%
Prior Period Adjustment 858 -32 -1,416
PBT 105,937 63,022 68.1% 76,875 37.8%
Tax 28,746 17,457 64.7% 16,435 74.9%
PAT 77,191 45,565 69.4% 60,440 27.7%
Source: Company data, I-Sec research

Table 2: Category-wise sales volumes and realisations

Particulars Q3FY23 Q3FY22 YoY (%) Q2FY23 QoQ (%)
Sales volumes (mnte)
FSA 157.8 144.6 9.2% 141.6 11.4%
E-auction 14.7 26.0 -43.5% 10.4 41.4%
Imported coal 0.2 0.0 0.1
Coking coal (washed) 0.5 0.5 12.8% 0.5 8.2%
Non-coking coal (washed) 1.6 1.6 0.6% 1.1 41.8%
By-products 1.2 1.1 5.5% 0.9 26.4%
Total sales 175.8 173.8 1.2% 154.5 13.8%
Production (mnte) 180.1 163.8 9.9% 139.2 29.3%

Sales realisation (Rs/ te)

FSA 1,482 1,370 8.2% 1,414 4.8%
E-Auction 5,046 1,947 159.1% 6,062 -16.8%
Imported coal 13,297 0 13,530 -1.7%
Coking coal (washed) 9,950 7,466 33.3% 10,263 -3.1%
Non-coking coal (washed) 2,430 2,170 12.0% 2,269 7.1%
By-products 3,660 4,080 -10.3% 3,886 -5.8%
Avg. realisation 1,843 1,497 23.1% 1,781 3.5%
Source: Company data, I-Sec research

2
 mnte mnte
Coal India, February 1, 2023

Rs/te

0
20
40
60
80
100
120
140
160
180
200
0
50
100
150
200
250

-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Q1FY17 108 20
Q1FY17 133
126
Q1FY17 Q2FY17 93 19
116

FSA
Q2FY17 104
Q2FY17 Q3FY17 113 25
Q3FY17 142
148
Q3FY17 Q4FY17 116 30

1,289
Q4FY17 152
176
Q4FY17 Q1FY18 107 27 138
Q1FY18 119

1,337
Q1FY18 Q2FY18 105 23

e-Auction
Q2FY18 131
113
Chart 2: Offtake breakup

1,333
Q2FY18

1,224
Q3FY18

Chart 3: Realisation trend

122 26

FSA realisation
152

1,611 1,614
Q3FY18 152

Source: Company data, I-Sec research

Source: Company data, I-Sec research
Source: Company data, I-Sec research

Q3FY18 Q4FY18 126 29

Q4FY18 160
183
Q4FY18 Q1FY19 130 19 153
Chart 1: Production and offtake

Q1FY19 137
Q1FY19 Q2FY19 117 18 137

2,399
Q2FY19 120

1,308
1,508
Q2FY19 Q3FY19 136 15
Q3FY19 154
156
Q3FY19
Q4FY19 142 17 164
Q4FY19 191
Q4FY19
Sales volume

Coking coal (washed)

Q1FY20 130 19

2,754
Q1FY20 153
137

1,633
Q1FY20
Q2FY20 104 15

2,155
Q2FY20 122
Q2FY20 104

2,019
Q3FY20 128 10 Q3FY20 142
Q3FY20 148

1,370 1,411
2,623
Q4FY20 139 21 164

E-auction realisation
Q4FY20 Q4FY20 214
Q1FY21 102 16 Q1FY21 120
Q1FY21 121
Production

Q2FY21 108 22 Q2FY21 134

Q2FY21 115

1,437
Q3FY21 123 27 Q3FY21 157
Q3FY21 154
Q4FY21 133 29 Q4FY21 165
Q4FY21 203
Non coking coal (washed)

Q1FY22 127 30 Q1FY22 160

Q1FY22 124

1,451
Q2FY22 118 27 Q2FY22 147
Q2FY22 126

1,412 1,392 1,382

Q3FY22 145 26 Q3FY22 174
Q3FY22 164
Q4FY22 180
Avg. realisation
Q4FY22 150 28 Q4FY22 209

2,434
By product

Q1FY23 154 21 Q1FY23 177

Q1FY23 160
Q2FY23 4,340 Q2FY23 142 10 Q2FY23 155
139
6,062

Q3FY23 Q3FY23 158 15 Q3FY23 176

180

1,443 1,482
1,843
5,046

3
ICICI Securities
Coal India, February 1, 2023 ICICI Securities
Change in earnings estimate
Table 3: Earnings revision (standalone)
(Rs mn, year ending March 31)
FY23E FY24E
Previous Revised % chg Previous Revised % chg
Sales 1,253,156 1,362,713 8.7 1,247,173 1,283,794 2.9
EBITDA 364,373 402,518 10.5 329,935 301,057 (8.8)
PAT (Rs) 264,344 302,162 14.3 233,890 221,564 (5.3)
Source: Company data, I-Sec research

Considering the performance in 9MFY23, we now estimate higher volume for FY23E/
FY24E (now 700mnte/735mnte, earlier 695mnte/730mnte). We also increase our e-
auction realisation estimates for FY23E (now Rs5,200/te, earlier Rs4,000/te) and
FY24E (now Rs2,500/te, earlier Rs2,400/te). However, we incorporate higher costs
mainly on employee, stores & spares consumption and contractual expense fronts, but
also increase our other income estimates due to higher deposit rates.

Valuation methodology and risks

We maintain our BUY rating but revise our DCF-based target price to Rs282/sh
(earlier: Rs294/sh), incorporating higher volumes, realisations, as well cost increases.
CIL is currently trading at 6.3x P/E and 3x EV/ EBITDA on FY24E basis with 34%
RoE. We believe dividend yield will be >10% at CMP.

Key downside risks: 1) Weakness in power sector leading to lower volumes, 2)

weakness in international coal prices (impacting sentiment and making imported coal
more competitive vs domestic coal), and 3) natural disasters impacting volumes.

Price chart
280
260
240
220
(Rs)

200
180
160
140
120
100
May-20

May-21

May-22
Jan-20

Jan-21

Jan-22

Jan-23
Mar-20

Mar-22
Mar-21
Jul-20

Jul-21

Jul-22

Nov-22
Sep-20

Nov-20

Sep-21

Nov-21

Sep-22

Source: Bloomberg

4
 Coal India, February 1, 2023 ICICI Securities
Financial summary (consolidated)
Table 4: Profit and loss statement
(Rs mn, year ending March 31)
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Operating Income (Sales) 858,624 995,469 960,803 900,260 1,097,135 1,362,713 1,283,794 1,340,201
Operating Expenses 762,962 745,698 741,595 714,526 850,230 960,195 982,737 1,005,406
EBITDA 95,663 249,771 219,208 185,734 246,905 402,518 301,057 334,795
Margins 11.1% 25.1% 22.8% 20.6% 22.5% 29.5% 23.5% 25.0%
Depreciation & Amortisation 30,664 34,504 34,508 37,089 44,287 48,191 52,646 58,406
Gross Interest 4,318 2,750 5,029 6,447 5,415 7,000 7,000 7,000
Other Income 46,583 58,737 61,042 37,894 38,959 61,000 58,000 55,000
Recurring PBT 107,264 271,255 240,713 180,092 236,163 408,327 299,411 324,389
Add: Extraordinaries - (8) - - - - - -
Less: Taxes (37,067) (96,625) (73,710) (53,071) (62,379) (106,165) (77,847) (84,341)
Net Income (Reported) 137,742 174,622 167,003 127,022 173,784 302,162 221,564 240,048
Recurring Net Income 70,198 174,622 167,003 127,022 173,784 302,162 221,564 240,048
Source: Company data, I-Sec research

Table 5: Balance sheet

(Rs mn, year ending March 31)
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Assets
Total Current Assets 696,288 687,114 840,511 812,285 859,169 1,134,492 1,011,627 1,023,141
of which cash & cash eqv. 314,751 311,242 284,468 173,103 291,795 492,122 381,795 363,232
Total Current Liabilities & Provisions 1,002,216 975,013 1,042,577 1,116,343 1,233,387 1,424,223 1,306,216 1,298,344
Net Current Assets (305,929) (287,898) (202,066) (304,057) (374,218) (289,731) (294,589) (275,203)
Investments 15,086 31,710 19,729 59,502 97,064 97,064 97,064 97,064
of which
Other Marketable - - - - - - - -
Net Fixed Assets 15,086 31,710 19,729 59,502 97,064 97,064 97,064 97,064
of which 378,638 422,726 451,119 528,951 595,741 659,348 731,702 798,296
Capital Work-in-Progress
Total Assets 102,864 96,616 83,283 104,898 128,971 128,270 140,770 153,270
272,701 352,176 457,639 501,454 569,046 717,140 784,636 870,616
Liabilities
Borrowings 15,309 22,027 64,260 58,753 33,098 33,098 33,098 33,098
Deferred Tax Liability/(Asset) - - - - - - - -
Equity Share Capital 62,074 61,627 61,627 61,627 61,627 61,627 61,627 61,627
Face Value per share (Rs) 10 10 10 10 10 10 10 10
Reserves & Surplus 140,016 206,980 263,883 307,957 376,541 524,635 592,131 678,110
Net Worth 202,090 268,607 325,510 369,584 438,168 586,262 653,758 739,738
Total Liabilities 272,701 352,176 457,639 501,454 569,046 717,140 784,636 870,616
Source: Company data, I-Sec research

5
Coal India, February 1, 2023 ICICI Securities
Table 6: Cashflow statement
(Rs mn, year ending March 31)
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Operating Cashflow 100,862 209,134 201,512 164,111 218,071 350,353 274,210 298,454
Working Capital Changes 197,054 7,611 (28,767) 16,978 218,363 115,841 (105,469) (37,949)
Capital Commitments (65,454) (70,063) (54,148) (107,089) (110,757) (111,798) (125,000) (125,000)
Free Cashflow 232,461 146,681 118,597 74,000 325,677 354,396 43,741 135,505
Cashflow from Investing
- - - - - - - -
Activities
Issue of Share Capital - (447) - - - - - -
Buyback of shares - - - - - - - -
Inc (Dec) in Borrowings (109,368) (55,287) (56,628) (86,762) (94,576) - - -
Dividend paid -including tax (119,834) (94,456) (88,743) (98,604) (104,766) (154,068) (154,068) (154,068)
Extraordinary Items - - - - - - - -
Chg. in Cash & Bank balances 3,259 (3,509) (26,774) (111,365) 126,335 200,328 (110,327) (18,563)
Source: Company data, I-Sec research

Table 7: Key ratios

(Year ending March 31)
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Per Share Data (Rs)
EPS(Basic Recurring) 11.3 28.3 27.1 20.6 28.2 49.0 36.0 39.0
Diluted Recurring EPS 11.3 28.3 27.1 20.6 28.2 49.0 36.0 39.0
Recurring Cash EPS 21.7 42.2 41.7 29.0 41.5 64.2 51.0 54.9
Dividend per share (DPS) 16.5 13.1 12.0 16.0 17.0 25.0 25.0 25.0
Book Value per share (BV) 32.6 43.6 52.8 60.0 71.1 95.1 106.1 120.0

Growth Ratios (%)

Operating Income 9.8 15.9 (3.5) (6.3) 21.9 24.2 (5.8) 4.4
EBITDA (21.8) 161.1 (12.2) (15.3) 32.9 63.0 (25.2) 11.2
Recurring Net Income (24.3) 148.8 (4.4) (23.9) 36.8 73.9 (26.7) 8.3
Diluted Recurring EPS (24.3) 150.6 (4.4) (23.9) 36.8 73.9 (26.7) 8.3
Diluted Recurring CEPS (9.5) 94.7 (1.1) (30.5) 43.1 54.6 (20.5) 7.7

Valuation Ratios (x)

P/E 19.9 7.9 8.3 10.9 8.0 4.6 6.3 5.8
P/CEPS 10.4 5.3 5.4 7.8 5.4 3.5 4.4 4.1
P/BV 6.9 5.2 4.3 3.8 3.2 2.4 2.1 1.9
EV / EBITDA 7.3 3.5 5.2 6.5 3.7 2.0 3.0 2.9
EV / Operating Income 1.2 1.1 1.2 1.3 0.9 0.6 0.7 0.7
EV / Operating FCF 4.6 7.3 9.7 16.4 3.2 2.3 21.5 7.1

Operating Ratios
Employee cost / Revenue (%) 49.7 38.9 41.0 43.0 37.1 33.4 35.8 33.5
Operating exp / Revenue (%) 88.9 74.9 77.2 79.4 77.5 70.5 76.5 75.0
Other Income / PBT (%) 43.4 21.7 25.4 21.0 16.5 14.9 19.4 17.0
Effective Tax Rate (%) 34.6 35.6 30.6 29.5 26.4 26.0 26.0 26.0
WC / Total Assets (%) (112.2) (81.7) (44.2) (60.6) (65.8) (40.4) (37.5) (31.6)
Inventory Turnover 11.2 16.6 15.7 11.6 13.7 15.6 12.4 12.6
Receivables (days) 36.9 20.2 54.7 79.6 37.8 41.7 41.1 45.3
Payables (days) - - - - - - - -
Net D/E Ratio (%) (148.2) (107.7) (67.7) (30.9) (59.0) (78.3) (53.3) (44.6)

Profitability Ratios (%)

Recurring Net Income Margins 8.2 17.5 17.4 14.1 15.8 22.2 17.3 17.9
RoCE 64.7 60.7 43.7 30.7 37.7 49.6 33.0 31.7
RoNW 68.2 65.0 51.3 34.4 39.7 51.5 33.9 32.5
Dividend Payout Ratio 145.9 46.6 44.3 77.6 60.3 51.0 69.5 64.2
Dividend Yield 7.3 5.8 5.3 7.1 7.6 11.1 11.1 11.1
EBITDA Margins 11.1 25.1 22.8 20.6 22.5 29.5 23.5 25.0
Source: Company data, I-Sec research

6
Coal India, February 1, 2023 ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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